Mattel has rebuffed Hasbro's latest takeover approach, people familiar with the matter said, casting uncertainty over the potential combination of the world's two largest toy companies.
Mattel's rebuttal indicates that Margaret Georgiadis, who took over as the company's chief executive in February, is seeking to drive a hard bargain in negotiations with Hasbro.
This is despite the fact that Mattel's stock has significantly underperformed that of Hasbro in the last year.
Mattel has informed Hasbro its proposal undervalues the company and does not take sufficiently into account the potential for regulators to reject the deal based on antitrust concerns, the sources said.
The terms Hasbro has proposed is not known, and it is not clear whether negotiations between the two companies will continue.
The companies have engaged in multiple rounds of deal talks over the last two decades.
The three sources asked not to be identified because the matter is confidential.
A combination of the two companies would create a toy powerhouse, uniting Hasbro's My Little Pony, Monopoly and Nerf brands with Mattel's Barbie dolls and Hot Wheels toys.
It would give Hasbro more pricing power to negotiate with entertainment studios over TV and movie franchises.
Hasbro and Mattel have had talks several times over the years, including in 1996 and again sometime in late 2015.
Hasbro's more recent outreach to Mattel was from a position of strength.
Before the Wall Street Journal reported Hasbro's approach last week, Mattel shares were down 47% year-to-date, while Hasbro shares were up 18%.
Mattel has a market capitalisation of $6.3 billion, while Hasbro has a market capitalisation of $11.8 billion.
The September bankruptcy of Toys "R" Us, the biggest US toy retailer, highlighted the struggles facing the sector, including online competition and children's shifting preference for electronics over traditional toys.
Mattel has pointed to that bankruptcy as a reason for weak sales.
In June, Georgiadis outlined a new strategy for the company that called for expanding its brands and accelerating growth in emerging markets.
Two weeks ago, the California-based company suspended its dividend and said it would miss its full-year revenue forecast.
Hasbro, which is trying to diversify its revenue stream, also sought to buy US movie studio and entertainment company Lions Gate Entertainment this year, but those talks ended without a deal, Reuters reported in August.
That deal would have given Hasbro a direct pipeline into Hollywood, with more movies and TV shows tied to its toy brands.
In 2014, Hasbro held merger discussions with DreamWorks Animation, the studio behind "Shrek," but DreamWorks was subsequently bought by Comcast.
